Silicon Valley’s Venture Capitalists Eye Asia for IPOs

Richard Waters in San Francisco

Wednesday, 27 Oct 2010 | 8:25 PM ETFinancial Times

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Silicon Valley’s venture capital industry is coming to rely on Asia for the initial public offerings that have historically brought its biggest paydays, to judge by deals from Sequoia Capital, one of the Valley’s most prominent financiers.

AP

Map of Silicon Valley

The shift to Asia was capped this week with the Nasdaq IPO of Mecox Lane, a Chinese internet retailer, and highlights a dearth of new public tech companies in the U.S..

It is the seventh IPO by a Chinese company backed by Sequoia in the past 18 months.

By comparison, only two of the 12 companies backed by Sequoia to gain public listings over that time have been U.S. and neither of those two IPOs involved a firm from Silicon Valley or one in the computer or internet industries — Sequoia’s strongholds.

As the early backer of companies such as Apple , Cisco Systems and Google , Sequoia is among a small group of start-up investors that have dominated the local technology investing landscape, helping to create a style of venture capital investing that other countries have tried to emulate.

“While Silicon Valley remains a fabulous place to invest — the very best place in the western world – there are massive new enduring companies being created elsewhere,” said Michael Moritz, the Sequoia partner who was an early investor in Yahoo and Google.

"While Silicon Valley remains a fabulous place to invest — the very best place in the western world – there are massive new enduring companies being created elsewhere."-Partner at Sequoia Capital, Michael Moritz

The relative scarcity of IPOs in the U.S., compared to earlier periods, has brought warnings from the venture capital industry that it could damage new job creation and long-term investment returns.

The biggest gains from VC investments have traditionally come in the years after a company goes public, but many start-ups in the U.S. have chosen to sell out to bigger companies rather than list on Wall Street.

Three of the most successful Sequoia-backed start-ups to seek exits in the past year-and-a-half — mobile advertising company Admob, travel software company ITA Software and online retailer Zappos — have agreed to be acquired rather than pursue IPOs.

Clustered around Sand Hill Road, close to the epicentre of the U.S. technology industry, most Silicon Valley financiers until recently preferred to back only local entrepreneurs, or to encourage those from overseas to move to California.

Sequoia was hesitant to venture into new markets where it had no local contacts or experience, eventually moving into China in 2005 and India in 2006.

That has brought a quick payday, with IPOs and company sales in both countries. Deals in India have included the IPOs of SKS Microfinance, a lender in the fast-growing microcredit business, and Manappuram, another financial concern.